September 16, 1999 Individuals Would Be Big Winners in GOP Tax Bill But Clinton will likely veto the bill since it returns tax monies to taxpayers. Only in Washington would a 1% cut in income tax rates be called excessive. The 1% cut in rates applies to all tax brackets. The lowest bracket (15%) would be reduced to 14 1/2 % in “03. Starting in ‘05 other tax rates including minimum tax will be reduced by 1%. The top rate on capital gains would fall by 2 points to 18%, 8% for gains that are taxed in the lowest bracket. Effective date would be 1/1/99. Tax basis for assets could be adjusted for inflation after ‘99. Standard deduction for married filing joint would be raised starting in ‘01 until it is twice the amount for singles in ‘05. After that, the 14% tax bracket for marrieds would be broadened until it is double the size of the 14% bracket for singles after ‘07. Full repeal of estate and gift taxes. This would be accomplished by phasing in rate reductions over a nine year period ending in ‘09. (There goes my estate tax planning practice!) Higher contribution limits for IRAs, Roth IRAs, 401ks and other plans. Annual contribution limits for IRAs and Roths would increase over time from $2,000 to $5,000 by ‘06. Maximum that could be put into 401(k) and 403(b) plans would gradually rise in $1,000 increments from $10,000 to $15,000 by ‘05. Limit on annual payins to profit sharing plans would rise to $40,000 from $30,000. The $100,000 income limitation on converting IRAs to Roths would double in ‘03 to $200,000 for marrrieds. The easing in health insurance would be good news to many. Self employeds would be able to deduct 100% of medical premiums instead of having to wait until ‘03 to take full deduction. Education IRAs would be expanded to cover pre-college expenses and the $500 contribution cap rises to $2,000 in ‘01. Distributions from state prepaid tuition plans would be tax free as well as similar payouts from state sponsored college savings programs. More student loan interest would be deductible. Middle income taxpayers would receive some AMT relief. The AMT would not affect tuition and child credits in ‘99 and it would gradually be repealed over a four year period starting in ‘05. The dependent care and adoption credits would both rise. There are some benefits for businesses too, with the current equipment expense limitation jumping from $19,000 to $30,000 in “00. Turbo Tax and MacInTax Goofs A program error by Intuit, maker of Turbo Tax and MacInTax, the best-selling tax preparation programs caused a problem to people who filed electronically before April 1, Because of this slip up, the IRS did not get a form it was supposed to receive and therefore, some taxpayers received notices proposing additional tax, penalties and interest. Affected were some electronic filers who received dependent care benefits from their employer. The solution to the problem: to print out a copy of your Form 2441 and send it to the IRS with your response to its Notice. Value Overtakes Growth Growth stocks have outperformed value stocks for the last five years (1994-1998) and continued to hold steady above value during the first quarter of 1999. Value stocks began a run in March and have continued to outperform growth stocks since then. This rotation should serve as a reminder that a well-diversified portfolio should include both value and growth investments. New Social Security Statements Beginning October 1, 1999 all workers age 25 and older who aren’t receiving Social Security benefits will receive an annual statement from the Social Security Administration three months before their birth month. This new statement which is required under the Omnibus Reconciliation Act of 1989, will replace the personal earnings and benefits statement, a similar notice that is now available to workers by request. According to the SSA the new format is shorter and easier to read. I suggest that you read the statements carefully and use them in planning for your financial future. You should also check the earnings record for accuracy since your benefit projections are based upon earnings. You’re Lucky Recently, in the New York Times, there was an article on how some vendors have started to accept stock options as part of their fee for dealing with high growth Internet companies. The article dwelt at length on one owner of a consulting firm. It was discussed how he finds the compensation package both exciting and unnerving, as he struggles not to spend the money he does not have yet. What was of most interest to me was that since his decision to accept the options instead of a higher fee, he and his wife have retained the following: 1) a financial advisor 2) a tax lawyer 3) an accountant specializing in stock transactions, and 4) an initial offering consultant who helps devise long-term investment strategies You are lucky! In retaining me, you have already covered the preceding four! If you have any questions about these or any other tax or financial matters, please call me.